Saturday, July 4, 2009

Unearned Revenue

A liability for Unearned Revenue arises when a customer pays in advance upon receipt of an advance payment from a customer, the company debits cash and credits a liability account such as unearned revenue, or customer's deposits . As the services are rendered to the customers, an entry is made debiting the liability account and crediting a revenue account. notice that the liability for unearned revenue normally is "paid" by rendering services to the creditor, rather than by making cash payments.
unearned revenue ordinarily is classified as a current liability, as the activities involved in earning revenue are part of the business's normal operating cycle.

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